W:\File Transfer Area\Susan\Proposed ASA 570 Aus Appendix 1 (25 July 2012) Visio file 2.jpgLinking Going Concern Considerations and Types of Audit Opinions
[Aus] Appendix 2
(Ref: Para. A23‑Aus A27.1 )
Illustrations of Auditors’ Reports on a General Purpose Financial Report—Modified Opinions due to Going Concern Considerations (Fair Presentation Framework)
[Aus] Illustration 1: An auditor’s report on a financial report containing a qualified opinion due to inadequate disclosure of a material uncertainty in the financial report (under the Corporations Act 2001). (Ref: Para. A23‑Aus A23.2)
[Aus] Illustration 2: An auditor’s report on a financial report containing an adverse opinion due to inadequate disclosure of a material uncertainty in the financial report. (under the Corporations Act 2001). (Ref: Para. A24‑Aus A24.2)
[Aus] Illustration 3: An auditor’s report on a financial report containing a disclaimer of opinion due to a limitation of scope on the auditor (under the Corporations Act 2001). (Ref: Para. A27‑Aus A27.1)
See ASA 700[*] for applicable wording in the auditor’s report when the company makes a statement on compliance with International Financial Reporting Standards (IFRSs) and/or includes a Remuneration Report in the Directors’ Report.
Example Auditor’s Report
General Purpose Financial Report
Qualified Opinion due to inadequate disclosures
Corporations Act 2001
(Fair Presentation Framework)
[Aus] Illustration 1:
Circumstances include the following:
Audit of a single company’s financial report.
The financial report has been prepared under the Corporations Act 2001.
The terms of the audit engagement reflect the description of management’s responsibility for the financial report in ASA 210.
There is a material uncertainty which has not been adequately disclosed in the financial report. It relates to the company’s ability to re‑negotiate, or obtain replacement financing facilities for its existing facilities.
We have audited the accompanying financial report of ABC Company Ltd., which comprises the statement of financial position as at 30 June 20X1, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards, and the Corporations Act 2001, and for such internal control as the directors determine is necessary to enable the preparation of a financial report that is free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of ABC Company Ltd., would be in the same terms if given to the directors as at the time of the auditor’s report.[*]
Basis for Qualified Opinion
ABC Company Ltd.’s financing arrangements expire within the next financial year. The company has been unable to re‑negotiate or obtain replacement financing. This situation indicates the existence of a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern and therefore, the company may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial report does not fully disclose this fact.
Qualified Opinion
In our opinion, except for the incomplete disclosure of the information referred to in the Basis for Qualified Opinion paragraph, the financial report of ABC Company Ltd. is in accordance with the Corporations Act 2001, including:
(a) giving a true and fair view of the company’s financial position as at 30 June 20X1 and of its performance for the year ended on that date; and
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditor’s report will vary depending on the nature of the auditor’s other reporting responsibilities.]
The financial report has been prepared under the Corporations Act 2001.
The terms of the audit engagement reflect the description of management’s responsibility for the financial report in ASA 210.
The company is unable to negotiate or obtain replacement financing arrangements and is considering bankruptcy, which has not been adequately disclosed in the financial report.
We have audited the accompanying financial report of ABC Company Ltd., which comprises the statement of financial position as at 30 June 20X1, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards, and the Corporations Act 2001, and for such internal control as the directors determine is necessary to enable the preparation of a financial report that is free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our adverse audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of ABC Company Ltd., would be in the same terms if given to the directors as at the time of the auditor’s report.[*]
Basis for Adverse Opinion
The company’s financing arrangements expired and the amount outstanding was payable on 30 June 20X1. The company has been unable to re‑negotiate or obtain replacement financing and is considering filing for bankruptcy. These events indicate a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern and therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial report does not disclose this fact.
Adverse Opinion
In our opinion, because of the omission of the information described in the Basis for Adverse Opinion paragraph, the financial report of ABC Company Ltd. is not in accordance with the Corporations Act 2001, and does not:
give a true and fair view of the financial position of the company as at 30 June 20X1, and of its performance for the year then ended; and
comply with Australian Accounting Standards and the Corporations Regulations 2001.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditor’s report will vary depending on the nature of the auditor’s other reporting responsibilities.]